Blockchain, IOTA, Tangle & DAG- What exactly is the new buzz around these?

Blockchain- The technology behind Bitcoin is not alien to the world anymore. Possessing qualities of making transactions secure, reliable and transparent have allowed the acceptance of this revolutionary technology worldwide. The tamper-proof, immutable ledger that provided Bitcoin and other cryptocurrencies based on it with these amazing capabilities have gained huge popularity in the past few years. However, this doesn’t mean that it is perfect.

Bitcoin has risen to an unbelievable level in the past six years. This, in turn, has proved that the blockchain technology holds high value Though blockchain offers great capabilities for smooth transactions, there are still some drawbacks prevailing with blockchain that restrict it from being the only option for cryptocurrencies worldwide.

Issues with Blockchain

Transaction value and fees- With businesses increasing in the modern world, the number of transactions isn’t going down any day. The need of micropayments will also increase with the growth of IoT and paying higher fee for low-valued transactions doesn’t make any sense.

Mining charges- The blockchain network is made up of miners who are responsible for validating transactions. By doing this, they earn a certain amount in the form of incentive from the network. It is not possible to get rid of this process as they are an important part of the ecosystem.

Scalability- Blockchains will keep on growing over the period of time and eventually the requirement for storage space will increase in order to keep the transactions updated in the ledger. This is a big issue as it will raise the potential of making transaction and storage cost very high.

Heterogeneous system- The existing cryptocurrency technology is heterogeneous in nature as it involved two major actors in the system i.e. transaction issuers and transaction approvers. This increases the dependency factor of the system.

Introduction- Tangle

Blockchains have their limitations as we’ve seen till now. But there’s a new way around that resolves these issues and allows the data to be stored in a decentralized and tamper-proof manner. This new way is known as Tangle which the technology used in the IOTA project.

What is IOTA and how is it different from Bitcoin and Ethereum

IOTA is a new distributed ledger technology (DLT) which came into the scene in the year 2014. The IOTA project is designed to become the backbone of the Internet of Things. IOTA differs from existing blockchains such as Ethereum and Bitcoin as it doesn’t use any blockchain at all. It actually uses a Directed Acyclic Graph- ‘Tangle’. A Tangle new technology concept based on a mathematical principle which has been used and applied in different cases.

How does a Tangle work?
A Tangle is a Directed Acyclic Graph i.e. a ledger that stores transaction in a graph format which points in one direction and is non-circular (acyclic). Consider a network of different nodes (called ‘site’ in Tangle terminology) that are connected with each other with edges. An edge connects two sites with each other. In order to get validated, one transaction must approve two previous transactions/sites. The unconfirmed transactions/sites are called as tips.

For a transaction to successfully take place in a Tangle through a node, it has to verify two previous transactions first. These two transactions are chosen as per an algorithm. In order for a node to validate a transaction, it has to give Proof of Work by solving a cryptographic puzzle. Once this is done successfully, the transaction is made. This functionality of tangle allows us to eliminate the need for miners in the network as the node itself acts as a miner now. This result in the reduction of transaction costs to zero.

Now that we’ve established that IOTA and Blockchain do not function similarly, let’s have a look at the differences that come with IOTA (TANGLE)

• IOTA is not a blockchain and it is based on a different technology called Tangle (DAG)
• There are no miners or blocks or transaction fee involved in IOTA
• Scalability in IOTA is not a problem factor
• IOTA is designed to solve the problems of IoT

Centralization of control

Blockchain
In any blockchain based system, miners perform the task of verifying and validating the transactions in the network. For doing this, they earn rewards in the form of bitcoins on the network. As seen in some cases, in order to reduce the variation of the reward, miners form groups due to which the computational and political power goes in the hands of few operators. This allows them to gain control over the network and perform filtering and postponing of transactions which again leads to the issue of centralization of control.

IOTA Tangle
When it comes to the IOTA network, there’s no mining involved. For a transaction to take place in the Tangle, the previous two transactions have to be validated by it. This makes the network faster with increasing use. IOTA allows each user who has initiated a transaction to act as a miner.

Quantum Computing

Blockchain
Quantum computing, a concept yet to evolve, is capable of providing us with exceptionally fast computational power. These systems will be capable of overcoming the problems that classical computers struggle to solve. Blockchain’s enhanced encryption standards that provide the security to the network, will become obsolete if quantum computing comes into existence. Blockchain needs to mutate in order to secure its survival in the long run.

IOTA Tangle
The technology used by the IOTA network is future-oriented. Meaning that, even if quantum computers come into existence in the near future, IOTA will survive. It uses ‘exclusively quantum resistant cryptographic algorithms’ which makes the network immune to brute force attacks. Moreover, Tangle holds the power to decrease the impact of quantum consensus attack by almost a million times.

Micropayments

Blockchain
Consider the biggest and most popular blockchain i.e. the Bitcoin which has escalated over the time. Earlier, the transaction fee involved in making small payments was acceptable as it was low. However, with the increasing popularity and incredible growth of the network, the number of transactions have increased greatly which has increased the transaction fee accepted by the miners to process transactions. This has made the network useless when it comes to micropayments. Though solutions like the lightning network that are able to overcome this issue are in the process, their implementation is yet to be faced.

IOTA
On the other hand, IOTA requires zero fees to perform any transaction. Each IOTA transaction requires validating two previous transactions in order to get performed. In order to validate the two previous transactions, the user’s device performs “proof of work” based on a series of low difficulty math problems which can be performed on any device. As each site does its own part of work to get added to the network, no fee is required to be extracted from the validation fee.

While the Tangle is a new technology, it still holds strong potential to solve the problems existing in the current blockchains such as scalability, centralization, costs etc. With Tangle, IOTA can create systems and markets based that will be more reliable and sustainable.